Reductions in GST rates for everyday essential goods are set to improve saving capacity and increase monthly disposable income. These changes were announced at the recent GST Council meeting on September 3 and 4, 2025, which also introduced other significant reforms. Continue reading to understand the GST reduction benefits and how it impacts your purchasing power as a consumer.
Understanding the GST Reductions on Daily Essentials
The GST Council, on September 3, 2025, has given a green signal to simplify the GST structure with just two primary tax slabs: 5% and 18%. Additionally, a 40% slab exists for sin goods and luxury items. Known as “GST 2.0”, this reform was designed to make essentials more affordable and increase consumer spending.
As part of this, a range of daily essentials benefit from reduced GST rates, effective from September 22, 2025. A wide range of daily-use items and planned purchases will see significant price drops as they move to lower tax slabs or benefit from zero GST.
|
Category |
Item Examples |
Old GST Rate |
New GST Rate |
|
Food & Staples |
All Indian breads (chapati, paratha, roti, etc.), UHT Milk, Prepackaged paneer |
5% |
0% |
|
Butter, Ghee, Jam, Sauces, Namkeen, Cornflakes, Plant-based milks, Dairy products |
12% - 18% |
5%- 0% | |
|
Household & Personal Care |
Toothpaste, Soap, Hair oil, Shampoo |
18% |
5% |
|
Kitchenware, Utensils, Umbrellas, Combs |
12% |
5% | |
|
Baby Care |
Clinical diapers, Feeding bottles, Napkins |
12% |
5% |
How GST Cuts on Daily Essentials Will Boost Purchasing Power
The government's decision to reduce taxes on essential goods has lightened the financial load on consumers and enhanced their purchasing power. Below are some of the noticeable impacts expected after 22nd September:
- Increase in Disposable Income
A decrease of only a few hundred rupees on your grocery bill is spare money that you will have at your disposal for other uses. Here, your purchasing power doesn’t increase due to a rise in your salary; rather, it comes due to the lower cost of commodities.
- Lifestyle change
You now have additional money without having increased your savings or gotten a raise. This uptick in disposable income can encourage a lifestyle change or boost the affordability of aspirational purchases.
- More products for the same budget
You can now afford to purchase more with the same monthly grocery budget. This helps greatly for single-income households, easing the financial burden and emotional stress of providing sustenance.
- Compounding effect
While a slight saving on any single item may seem inconsequential on its own, the sums pile up across the whole spectrum of your monthly shopping list. Since the reduction covers a range of products simultaneously, all these small reductions create meaningful cumulative savings.
- Disproportionate benefit for essentials
Lower-income households spend a higher percentage of their income on these daily requirements. The reduced GST on these items provides them with relatively greater relief, effectively increasing their purchasing power.
Also Read: Administrative Structure of GST in India
To Conclude
This new GST structure aims not only to simplify GST taxation but also to make essential products a lot more accessible to the masses. It gives you an excellent opportunity to boost your savings through the lowered monthly expenses. You can use this extra money to build a financial safety net for yourself, start an investment, or even get rid of your existing debt. If you need financial support, consider applying for Poonawalla Fincorp’s loans, which offer instant application and quick disbursal.
Frequently Asked Questions
When do these new GST rates take effect?
On September 22, 2025, the 5% and 18% GST rates for most goods are expected to come into effect. The timing of these cuts is aimed at giving the consumers relief ahead of the festive season.
Are all products becoming cheaper?
No, all products aren’t becoming cheaper under the “GST 2.0”. These cuts are targeted at daily essentials, household goods, and some consumer durables. Luxury and high-end items, such as certain cars and bikes, as well as sin goods like soft drinks and high-end liquors, are set to become more expensive under the new 40% tax slab.
Is it true that my insurance premium will have zero GST?
Yes, individual health and life insurance policies will now be exempt from GST, which was previously 18%. This makes crucial financial protection more affordable for families.
Which vehicles will have lower GST?
The GST on small cars (petrol engines up to 1200cc, diesel up to 1500cc, under 4 metres long) and motorcycles up to 350cc has been reduced from 28% to 18%. Larger vehicles, luxury cars and bikes over 350cc will fall into the higher 40% tax bracket.
What happened to the 28% GST slab?
For most consumer goods, such as TVs, ACs, and small cars, the 28% slab has been replaced by the lower 18% slab. Luxury and sin goods will now be taxed at 40%.
How can I use the savings from these GST cuts effectively?
The money saved each month can be put to excellent use. Consider starting a small monthly investment (SIP), building an emergency fund, or using it to pay off existing loans or credit card bills faster.
Is cement also getting cheaper?
Yes, the GST rate on cement has been reduced from 28% to 18%. This is a significant move that can help lower construction costs for both individual home builders and the real estate sector.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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